Natsam Corporation has $150 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is the price of the shares once the repurchase is complete? c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?
Natsam Corporation has $150 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is the price of the shares once the repurchase is complete? c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...
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![Natsam Corporation has $150 million of excess cash. The firm has no debt and 600 million shares outstanding with a
current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend.
a. What is the ex-dividend price of a share in a perfect capital market?
b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is
the price of the shares once the repurchase is complete?
c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc6fbff9-4759-45b9-9f61-27046377aa96%2F7e1f4abb-5918-4f49-8d9e-5082dd4179d3%2F78qzbuo_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Natsam Corporation has $150 million of excess cash. The firm has no debt and 600 million shares outstanding with a
current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend.
a. What is the ex-dividend price of a share in a perfect capital market?
b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is
the price of the shares once the repurchase is complete?
c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?
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